Stating that it is not just food prices that are persistently high but even those of other items which remain elevated, Reserve Bank Governor Raghuram Rajan said on Monday that prices across the board have to come down to enable him to reduce key rates.
“Inflation is high not only in food, but also in non-food items and the best solution for the country is to bring it down. Then I can cut interest rates,” Rajan told bankers at a summit organised by industry body Ficci .
“I have no desire to keep interest rates high for even a second longer. I want to bring down interest rates when it is feasible and that would be when we have won the fight against inflation,” he said.
Taking a dig at the industry for its persistent demand to cut lending rates even when there is a price increase in the sector, the Governor asked them to bring down prices.
However, the consumer price inflation which the RBI has adopted as a monetary policy gauge, still remains high. For August, it inched down marginally to 7.8 per cent from 7.96 per cent a month earlier.
The RBI is targeting retail inflation of eight per cent by January next year and six per cent by January 2016.
Free diesel prices
The government must take advantage of the lowest oil prices in a year to deregulate diesel, RBI Governor Raghuram Rajan said on Monday.
“Lower crude oil prices are helping consuming countries like us. Typically a lower oil price means a lower CAD, lower oil subsidies and lower inflation. We need to seize this moment to eliminate diesel subsidies completely. We should take this moment to eliminate diesel subsidies as soon as possible,” Rajan told at a banking summit .
The NDA government has continued with the previous UPA regime’s policy of raising diesel rates by up to 50 paise a litre every month to bridge the gap between cost and retail prices.
Originally, petrol and diesel prices were deregulated in April 2002 when NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.
In January 2013, the UPA decided to deregulate diesel prices in stages through monthly 50 paise a litre increases. Rates were last raised on August 31 after which losses have dipped.
Oil Ministry officials said once the under-recovery is eliminated, a proposal would be put to the Cabinet Committee on Political Affairs for deregulation of diesel prices as was done for petrol.